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An anonymous reader submits "Even after a last minute offer from Qwest Communications, MCI board members accepteda less lucrative offerfrom Verizon to be bought for $6.7 billion in cash, stock and dividends. The acquisition comes after Nextel Communications and Sprint Corp. partnered up in a $35 billion deal and SBC Communications Inc. and AT&T Corp. announced a $16 billion merger plan. So, what's next for the telecom industry?"

It's called capitalism, and there's no time for that. Say what you will about capitalism, but it is almost the sole reason that the standard of living has risen so much in many countries over the last three centuries or so. This wave on consolidation has long been predicted, and its probably a good thing. Otherwise the telecom industry would end up fragmented and mostly bankrupty, much like today's airline industry.

All in the name of screwing the consumer over, I'd bet.

All in the name of surviving is more like it. These acquisitions should produce one or more of two things. 1) Lower costs for the companies involved, resulting in higher profits and better returns for the companies owners (largely public shareholders).2) Lower costs or better services for their customers.It is likely to be a combination of the two. This assumes, of course, that Verizon does the merger well, and that they did their due diligence to make sure this was a good idea in the first place. At the end of the day, remember that you can choose not to be a customer of any company, except, perhaps, those that are monopolies.

The Industrial Revolution and modern capitalism are intimately related. Without a more or less capitalist system the Industrial Revolution would not have happened or at the very least its effects would have been far less profound. Without the Industrial Revolution capitalism's power would not have been fulled revealed. Capitalism is ideally suited to mass production and industries that require large initial investment such as those that require factories.

For a business to survive in the long term, revenue fro providing a good/service must eceed the costs of providing that good/service. There's no guarantee that consolidation will bring better prices or service - in fact, it's quite likely that price will go up, or service will go down, until money in > money out for each business.

That may sound bad, but the alternative is the businesses go bankrupt and the good/service isn't provided at all.

Yes, M&A worked out so very well for HP/Compaq and AOL/Time Warner. We've certainly seen increased value and efficiency there.

Given MCI's state, I'll agree this is probably a good thing, but please remember that unfettered capitalism is also the source of a lot of evil. Capitalism is ultimately powered by greed (of one form or another), which has led to labor abuses, environmental destruction, and wholesale fraud as we've seen in the last few years.

Otherwise the telecom industry would end up fragmented and mostly bankrupty, much like today's airline industry.

One of the reasons that MCI/Worldcom ended up mostly bankrupt was the wave of aquisitions that they indulged in. They'd use the paper value of each aquisition to buy the next one. (With a little criminal accounting along the way.) The savings by operating in volume never materialized and they chopped technical staff to the bone, affecting service.

One of the reasons that MCI/Worldcom ended up mostly bankrupt was the wave of aquisitions that they indulged in.

Its a fair amount more complex than that. I would say that poor judgement in making the acquisitions, not the act of acquiring itself, was the problem. Further the pace of acquisition was too fast for one company. Finally, partially because of the previous reason, adequate integration of the acquired assets didn't happen, resulting in cost savings not being realized. The consolidation we're

Say what you will about capitalism, but it is almost the sole reason that the standard of living has risen so much in many countries over the last three centuries or so.

There is no finer systerm for taking a society from an agrain to a post-industrial culture. However, I think most of the ills we are suffering these days arise from capitalism. Whether it's corporate conservatism (RIAA, DMCA, etc), monopoly and consolidation (Microsoft, mergers), or the rollarcoaster ride that is our economy (How many of you went poor ->millionaire->poor in a a year or two? How many of you have houses that have inflated 400% in the last year or two, and will likely loose all that and more in the next couple?), captalism is failing us every day.

I'm sure the European Aristocracy that the cultural and industrial revolutions of 1700's replaced were congratulating themselves how much they had improved their standard of living over the old days. But they couldn't see outside the limits of their (*gasp*) class, or how their own system had become rotten and evil. It's funny how despite what High School history teachers tell you, learning history never stops us from repeating it. Life is shifty and will disguise itself. Maybe it's time to revolt again.

It's called capitalism, and there's no time for that. This wave on consolidation has long been predicted, and its probably a good thing.
In economics, as in most everything, we need to look at the evidence before having opinions. Time and time again economic studies show that mergers help neither the customers or the shareholders. http://www.globalchange.com/mergers.htm [globalchange.com]

All in the name of surviving is more like it. These acquisitions should produce one or more of two things.1) Lower costs for the companies involved, resulting in higher profits and better returns for the companies owners (largely public shareholders).2) Lower costs or better services for their customers.

This sounds great in theory, but I for one have never seen it in practice. How's HP/Compaq doing these days?

This wave on consolidation has long been predicted, and its probably a good thing. Otherwise t

Apparently, you don't understand capitalism as much as you claim to. The concept of the "invisible hand" rests upon the existence of open competition. As cartel members start acquiring one another, this open competition vanishes, and the result is a controlled market (That is to say, lower quality and higher prices to consumers).

But don't take my word for it, listen to the founder of American capitalism, Adam Smith [amazon.com]

Actually it is more likely in the name of reducing staffing. When I used to work for a telco I remember complaints about cutomers that we would like to give to our competition. At three cents a minute, people who do not make many long distance calls are actually a losing proposition for carriers. It costs more to send them a bill than they make off the account.

With the exception of not liking a particular feature, a phone feeling flimsy (StarTac) and a phone having a crippled feature (v710 bluetooth) I have never had a phone work only half the time, or 75%, or even only 90% of the time. All of my phones, and I have had a phone since 1995, have worked 95% or better...since 2000 I can say they have worked 99% of the time. Downtime only being if I 1)lose battary power (my fault), 2) have the phone lost/stolen 3) go into a dead zone(rare but it happens).

Because the first one would have been a bit difficult [findlaw.com] given the way the books were being cooked at the time (of course MCI was called "WorldCom" back then, but hey, change thy name and stay shiny).

After the baby bells were broken up, we had this very nice period where briefly, though you may not have had a choice of local phone providers, you had a real and serious choice of long-distance phone providers. Anyone else suspect this era is about to end? I think we're about to quickly go to the point where your regional local-phone monopoly quickly becomes a regional long-distance phone monopoly.

Who wants to take bets on how many SBC customers will be using MCI in five years, or how many Verizon customers will be using AT&T?

Why bother with a high-price telco with crappy services when you can get Vonage or Skype or any number of IP-based carriers that will be able to provide the same service cheaper and faster than traditional telcos.

You tend to see consolidation in dying industries - POTS is becoming a dying industry. Once VOIP starts really hitting the mainstream, that line of revenue will only continue to dry up.

Right now the money is in cellular service (where there's usually at least one local/regional company competing with the big boys - or at least there has been in my experience), and in VOIP. Either the telcos adapt or die.

As we've learned from both the dinosaurs and AOL/TimeWarner, sometimes being big and complex isn't a good thing from an evolutionary standpoint.

The three were about to merge, but their plans were thwarted when it was discovered that the world's supply of stupid committee-selected synthetic corporate names has finally been exhausted, so there would be no way to refer to the new conglomerate.

After two more rounds of mergers, we'll have two companies left in each area. Each with strict but unwritten agreements not to compete in each others' areas.
It's the same way Comcast/Time Warner do business in the Cable TV industry right now, anyways.

Cable is governed by franchises given out by the different governments. Each city, county gives out the franchise so that they can do their oversight duties. (And they can force a company to cover the complete area not just the lucrative parts of a jurisdiction. This is all do to the large cost of the infrastructure to wire every neighborhood. There will only be two company's competing - one "telephone" company and one "cable" company. And of course, you may also have other providers like satellite, ce

Comcast and Warner today operate under "gentleman's agreements" not to enter each other's territories, thus granting themselves monopolies and the ability to price-gouge where they currently are.

And no, no county does "franchises" for cable. Look at Milwaukee for a good example of how it USED to work - prior to the death of Viacom cable, there were two COMPETING cable companies in that county. The only reason no other cable company's come by since is that TW threatens to go into their existing counties and

And no, no county does "franchises" for cable. Look at Milwaukee for a good example of how it USED to work - prior to the death of Viacom cable, there were two COMPETING cable companies in that county. The only reason no other cable company's come by since is that TW threatens to go into their existing counties and deliberately undercut their prices, running at a loss till they drive the competition out of business.

The system he describes is the way it works where I'm at. It may not be that way everywh

Damn near everywhere, there is a franchise granted by the city or county to a cable company. This is the one small way that government has the cable companies over a barrel. They've been able to force the operators to cover rural areas that way, and occasionally, when a municipality or county gets really irritated, they won't renew the franchise.

The "gentleman's agreements" you mention, which all of the MSOs will deny to avoid the Sherman act, mean that nobody else will bid for the franchise, so the city/c

Verizon is what used to be GTE and Bell Atlantic. With MCI in the fold, does this allow them to be a national phone company that can be a local carrier coast to coast, like Bell used to be in the 70's? I am suspecting not, but it's worth asking.

I know MCI is not a local phone company (at least they weren't when I had them as my long distance carrier), but that would make Verizon huge (even more so than they are now).

I know MCI is not a local phone company (at least they weren't when I had them as my long distance carrier), but that would make Verizon huge (even more so than they are now).

MCI is more than just a "phone" company... they own a major chunk of the internet backbone. Nobody pays $6.7B for a midsized phone company. I wonder if Verizon really cares about the long distance phone company aspect? What they are after are the massive pipes over which they can now send data at less cost, and now charge others to

No, it's what used to be Nynex (New England + NY) & Bell Atlantic (Mid-Atlantic). They may have picked up some of the GTE service areas in that region, but it's basically the merger of those two RBOCs.

You seem to be confused. When the RBOC's were broken up, PacBell was part of Pacific Telesis (along with Nevada Bell), and SNET was independant. Verizon does indeed own GTE [gte.com]. Accurate information here [nebs-faq.com].

MCI is currently the largest ISP allowing (and some consider supporting) spammers to use their bandwidth.
Verizon is currently one of the most aggressive anti-spam ISPs. Some have argued they've gone to far blocking legit messages often but most of their users are happy about the spam control.
How these two will mesh may be a very interesting chapter in the war on Spam.

Hmm... You're right, I checked the Spamhaus.org ratings after I posted and Verizon is listed at #8 while MCI is #1. Still, my thought is that the majority of Verizon spam servers are DSL users who are ignorant zombies. MCI has been known to continue allowing allowing spammers to setup legit (at least in their eyes) servers and send out Spam, while in Verizon's case, it seems to be more hacked boxes. Verizon should do more to defend against this, but they've certainly done better than MCI. One reason the

Why would a board approve a purchase for less money than a competing offer?
Under-the-table payments to board members is the only plausible reason that comes to mind. Are there other explanations?
Whatever the explanation is, I have a hard time seeing how "increasing shareholder value" comes in to it...

One of the things they look at is their own security; is the new company going to purge the board and replace them? Another is what they plan to do with the company; are they going to gut it and sell off the parts, making your options worthless? There's a lot more to a deal than just stock price. Maybe the board just doesn't like the attitude of the higher bidder. Money isn't *always* everything.

MCI's largest cost is line cost (the cost of leasing lines from other carriers) and Verizon needs a data network. After the merger, MCI does not have to pay line costs to Verizon anymore and Verizon gets a data network. It's a win-win for both companies.

- debt load- payout schedule- amount financed through new debt (junk bonds used to be a common component)- ongoing ability of the buyer to actually pay

and so on. Have a look at the excellent "Barbarians at the Gate" (isbn: 0060536357) to get a feel for what happens. That was an extreme case (RJR/Nabisco), but it brings up a lot of the variables involved.

Why would a board approve a purchase for less money than a competing offer?

Depends on several things. You're alluding to "Revlon duties", which are imposed by Delaware law and require the board of a company that's on the auction block to get the highest possible short-term shareholder value in the sale.

For one, it depends on the governing law and the structure of the deal. Revlon duties are part of Delaware corporate law; many states have "constituency" laws that affirmatively do not impose Revlon-type

Well, now that a few of them have merged, they'll probably stabilize for a little while, and then start buying each other up again. Pretty soon, we'll be down to one company providing phone service.

Hey, wasn't there talk of TV over phone too? Maybe once all the companies merge, they could call themselves... American Telephone and Television? Or just AT&T for short. That has a nice ring to it. Ring! That's it, they can use a bell as their company logo! People can buy stock in it, and refer to "My Bell" phone company.

What's interesting about all of these acquisitions is that yes, in the short term, it may reduce some degree of choice we once had as consumers. But bear in mind, that just as old, crusty, entrenched companies can be laid to rest by merging with other old, crusty, entrenched companies, there is always room for new competitors. Simply put, the monopolies resulting from these acquisitions still need to stay on their toes, lest the carpet be yanked out from under them by newer, leaner, more innovative, more ag

In the case a better predictor of the future is to look at past performance; the past performance of Michael Capellas. This guy turned Compaq around and sold it. He turned MCI around and sold it. Michael's the reliable predictor here, not the random number generator.

The simple fact is, that long distance companies are a dying breed. Sure, plenty of people still have long distance, but more and more people are getting wise to the fact that you can simply use your cellphone to make a long distance call. Of course these companies are going to get bought out while they're still profitable. This coming off the heels of a year when wireless surpassed wireline in terms of customer base, and during a year when it's predicted the wireless minute usage will surpass wired minute useage.

Although funny, I guess their was some truth to it. But the real question comes to whether this is good for the telecom industry or not. I guess so in ways, but I think that only time will tell. It is kind of sad to see what used to be the biggest names in telecom bought out, and possibly destroyed, especailly stuff like this. [slashdot.org]

The DeathStar was broken up into little pieces, but apparently the dark side of the Force is bringing them back together.
Admiral Vonage and General Skype will lead the rebel alliance
Help us, Obi-For-Wan-Wan, you're our only hope!

With only 3 regional companies left, there's going to be significant pressure to reduce that to 2, since it's far easier to hold a virtual monopoly when you only have 1 competitor to deal with. Look for Qwest, the smallest company right now, to be the victim and swallowed up by one of the others, probably SBC. I doubt we'll see 2 become 1 in the short-term though, since the burden of proof on the survivors that it's acceptable for them to be 1 company is going to be too high. In the long term however, if Vo

I'm surprised at the knee-jerk alarm about this merger. Do you people really think that this is going to lead to monopoly?

Hardly. For one thing, there are still a ton of telecom providers out there... it'll be Verizon, AT&T, BellSouth, Qwest, and two dozen smaller regional carriers. All these mergers have accomplished is the undoing of the ill-considered 1986 telecom act, which said you couldn't do both long-distance and local telephony. Now the big guys do both.

But more importantly, there's more competition than ever before in the industry because of emerging technologies and the net. Voice over IP providers --including pure-play guys like Vonage, as well as all the cable companies-- are starting to compete with the phone companies. So AT&T and Verizon are going to have to stay competitively priced in order to keep from losing customers to those services.

And have you ever heard of cell phones? The wireline carriers can't crank up costs, because they're already losing people to their mobiles.

Not that it matters, but I'm a liberal and usually object to any conglomeration of corporate power. But it's silly to instantly panic at any sort of merger and assume it's a nightmare.

All these companies are doing is trying to stay alive in the face of killer new technology. The only people screwed here are the carriers themselves.

It's just kind of odd that we let the same companies that we spent $N billion dollars splitting up slowly merge back together just because there isn't enough political will to stop it. Yesterday a Baby Bell bought AT&T long distance back.

And in other news, Sprint-Nextel, SBC-AT&T and MCI-Verizon signed a merger agreement today in a move to stave off competition and put an end the mega-mergers of late in the telecomm industry. The companies have issued a joint press-release indicating that the new company will be known as AT&T.

Good thing we broke up MA-Bell so we wouldn't have one company monopolising the entire phone system. Thank god we were smart enough to not break them up into smaller monopolies that ran different parts of the country and could get enough to buy up each other and eventually reform Brother-Bell, and Sister-Bell, which marginally compete.::sigh::

Actually, they've been MCI for a long time. They only merged with WorldCom in 1997. They were MCI before that, they were MCI WorldCom from 1997 to 2000, and after the fraud scandal, they became MCI again.

The only time they didn't have MCI in their name was between 2000 and the fraud scandal, which was a pretty short time. So, yeah, they're scum, but they're not really hiding. They're hiding a little, because the scandal is usually associated with WorldCom's name, but if they really wanted to hide their past, they'd come up with a completely new name.

Nevertheless, we're talking about the company that bought MCI, not MCI itself. They have the right to call themselve MCI if they choose, but it's also true that this is the company that used be called Worldcom.

These opponents play to people's sense of outrage at the corporate scandals that rocked the business world last year, as well as to the breathtaking extent of the $11 billion accounting fraud at WorldCom. Their main claim is that allowing MCI to exit bankruptcy would allow it to profit from its "ill-gotten gains." Both justice and deterrence, they argue, require that MCI be dismembered, if not put to death.

Such claims understandably strike an emotional chord with America's scandal-weary public. Yet those claims are wrong all the same. Simply put, MCI retains no "ill-gotten gains" from the accounting fraud. Whatever short-term advantage the company might have gained has already been lost, many times over. In his opinion on the recent litigation between the SEC and MCI, Federal district court judge Jed Rakoff placed the liquidation value of the company at less than $6 billion. This value pales in comparison with the $200 billion by which WorldCom's equity has plunged.

In the overall scheme of things, there can be little doubt but that MCI would be in stronger shape today had the fraud never occurred, than it will be if it is allowed to emerge from bankruptcy.

While MCI's liquidation would be good for its rivals, it would be bad for the consuming public. It would reduce the choices available to many consumers of telecom services, force 20 million MCI customers to find new suppliers, and leave more of the telecom market under the control of the still relatively monopolistic Baby Bell companies. Local phone competition, which has finally started to deliver major savings to consumers in recent years, would take an especially big hit.
Also wrong are claims that the liquidation of MCI is a means to secure justice and promote deterrence against such misdeeds in the future. Justice is served by punishing responsible individuals. So is deterrence. Neither is served by wreaking punishment indiscriminately on such innocent people as workers, investors, creditors, and customers.

To penalize an entire corporation for the misdeeds of some of its officials is to spread the resulting loss among all participants in the corporation. If corporate misdeeds are punished at the individual level, deterrence works as it is supposed to work. But if those misdeeds are punished at the corporate level, the deterrence effect is weakened and the injustice compounded.

It would be different if all participants within WorldCom had agreed to engage in fraudulent practice. But this is clearly not what happened. A few crooked executives engaged in fraudulent activity, and the practice was halted and made public when other individuals within the company became aware of it. To punish MCI wholesale would be to punish those innocent individuals and not the guilty wrongdoers.

It is easy to see why the entrenched incumbents are so keen to bring about MCI's demise. The likes of AT&T and the Baby Bells would rather feed on WorldCom's carcass than see it rejuvenated and have to compete with it for business. The public good, however, would be far better served if MCI receives a second chance instead of an early grave

I think you have read this wrong. The telecom industry in very capital intensive (lots of expensive equipment, millions of dollars in cables alone, etc etc). Telecom companies by their very nature have to take on large amounts of debt in order finance all this capital.

so, along comes MCI, emerging from bankruptcy, retaining all the capital/equipment/etc/etc that they need to run a telecom company, but without any of the debt.

Do you think this would allow them to be more competitive in telecom than the

and the same MCI that is the number 1 spammer according to the Spamhaus charts [spamhaus.org]. Spamhaus also put out this article [spamhaus.org] charging that MCI profits from spam. Verizon's getting all that.

You'd rather they evaporated entirely, disabling one of the internet backbones, leaving 75 government agencies and much of the Fortune 1000 without phone and internet service, putting hundreds of thousands of people out of work, and completely destroying the investments of people taken in by the accounting fraud? Maybe the assets and obligations should go to some organization capable of managing them honestly?

This isn't really the same MCI that was involved in accounting fraud, because the individuals involved in the fraud aren't there any more. Even if they were, after being bought by Verizon, they wouldn't be in charge any more. The idea that a corporation is a legal entity with rights and responsibilities is a useful fiction in making the law function at all, but it doesn't actually make sense to talk about "the same MCI" from then to now.

Let me share a personal experience with merging companies. I worked for a company that was in bankruptcy. After working hard for several years, the company pulled itself out of bankruptcy and went public. Not too long after that we merged with a different company. At first the new company wanted to run things the way they had before, but soon realized that they were over their heads. Everyone sat down and worked out which things would be best for the combined company. Some things were taken from one company

Worldcom bought MCI. They went bankrupt. After they went bankrupt their creditors own everything. So they didn't just "change their name" and get out of it. This is the creditors who got fucked on the original deal, struggling to spin MCI off as a new company and get away from the bad name of Worldcom. When a company goes bankrupt and then comes back, its not under the same ownership. Anyone who had stock in Worldcom when it went bankrupt lost it. It went to 0.

This happend during the previous administration too. Its really a funny situation where free markets would have worked, if it wasn't for the pesky problem of much of every teclos assests exist because of government grants.

The good part about competition in such an industry is that it lowers prices. Prices on most of their services are basically as uninflated as they get. That said, now we can hope for things like better coverage (from the ATTWS/Cingular merger) or better services from consolidation. Of course these things take time.:-/

Why stop there? While we're at it, I think it's time we abolish this whole ownership society thing. The whole concept of private property is offensive. Why should we allow individuals to believe they are better than anyone else, and have things that others don't?

There are needy people out there that are being trampled by greedy, heartless bigots who are unwilling to sacrifice their own luxury for the collective good.

What, Like MCI/UUNET has/had good customer service? I feel ashamed that I worked for 7 years for those thieves. My only wish is that my friends that still work for them manage to land on their feet after the inevitable bloodletting.

BTW, When I had my throat slit 2 years ago, I know several systems lost the only people that knew how they worked. When they broke, there was no one around that knew what to do.

The good news is that I have a much better job now working for a non-profit. Make a little less money